Growth Effect of Sectoral Expenditure, Human Capital, and Labor Productivity in Oman: An Empirical Study using ARDL Framework

Abstract

Oman has joined the ranks of resource-dependent economies in understanding the vital role strategic public spending and human capital development play in sustaining long-term economic growth. This research investigates how sectoral spending, labor productivity, domestic investment, and human capital development affect economic growth between 1990 and 2024 within the framework of Oman Vision 2040 and the country's economic diversification efforts beyond oil. The study began its analysis by testing the stationarity properties of the variables, which revealed a mixed order of integration. Based on these results, the study utilized the Autoregressive Distributed Lag (ARDL) method to analyze long-run relationships and assess short- and long-term effects. Using the bounds test, researchers established that the variables maintain a long-term cointegrated relationship. According to the estimation findings, labor productivity and military spending demonstrate a substantial negative influence on Oman's economic growth. Investments in education and human capital, demonstrated through secondary school enrollment, have a significant positive correlation with economic growth. The analysis revealed that domestic investment does not produce statistically significant results, which implies that its current distribution does not enhance economic performance effectively. Standard diagnostic tests validated the model, which demonstrated that the findings are both robust and reliable. The findings demonstrate that Oman needs to focus on educational advancement and skill training while reassessing how resources are allocated between investments and military expenditures to enable its shift towards a diversified knowledge-based economic structure.